Europe's telcos flout net neutrality in push to make Big Tech pay

ETNO wants Big Tech treated differently from other companies that rely on telecom infrastructure.

Iain Morris, International Editor

July 20, 2022

8 Min Read
Europe's telcos flout net neutrality in push to make Big Tech pay

Visitors to emerging-market kleptocracies may be familiar with the concept of the "tourist price" for popular attractions. The basic idea is to fleece rich Westerners so that poor locals, bled dry by thieving politicians, can at least enjoy free access to some ancient ruins. Nobody complains because the fees are usually exorbitant only by local standards, and many travelers already feel Western guilt that they can live like palace-dwelling kleptocrats on just a few dollars a day. But however you square it, tourist prices are discriminatory.

That's a problem for Europe's telecom industry, which hopes to import the idea from the developing world's tourist sector and apply it to networks without violating the cherished principle of net neutrality. Aggrieved that their own business models have not allowed them to share in the wild success of capacity-guzzling Internet giants, Europe's telcos want the likes of Amazon and Netflix to shoulder tourist prices for network access so that everyone else can pay less.

It is not framed in exactly these terms but rather by reference to what ETNO (the European Telecommunications Network Operators' Association) calls a "fair contribution" in a statement issued this week. "All European network operators investing in gigabit networks – no matter whether alternative or traditional, small or big – should be able to rely on a fair and proportionate contribution by Big Tech companies to the network costs they generate with their traffic," is the critical wording.

Figure 1: Operators including the UK's BT want Big Tech to pay for network usage. (Source: BT) Operators including the UK's BT want Big Tech to pay for network usage.
(Source: BT)

These "fair contribution" calls have been gaining volume during the pandemic as operators start to sweat about their increasingly knackered approach to network monetization. It is possible to feel some degree of sympathy for executives who inherited this flawed system from their forebears. Internet usage has exploded, and today's networks need expensive upgrades to cope with video streaming, graphics-heavy games and other advanced applications.

But there is no corresponding uptick in sales. Operators skipped from the taxicab to the Uber model years ago, and consumption is rarely metered. In a country where just about everyone is a broadband customer, that means revenues have flattened. Surging costs plus flat revenues equal something's gotta give. Operators seem to think it should be the Big Tech firms that have popularized Internet usage.

Squeezing Big Tech

European authorities are not averse to squeezing Big Tech. Even in famously neutral Switzerland, politicians have passed laws forcing Netflix to invest 4% of its local revenues in the Swiss filmmaking industry. Netflix has already done more than any traditional broadcaster to champion non-English language content and bring it to a bigger audience, which makes this law a blatant cash grab.

The trouble is that Europe's authorities, for several years, have been hollering as loudly as any placard-waving protester about net neutrality. From the perspective of lawyers, the concept is about as well-defined as Homer Simpson's abs, but Europe has at least put forward something it calls the "open Internet." On its website, it says, "EU rules enshrine the principle of open Internet access: Internet traffic shall be treated without discrimination, blocking, throttling or prioritization."

As vague as this all sounds – and overlooking the fact that asking Internet companies to pay for what consumers have already bought would be double-charging – billing some companies but not others for essentially the same thing clearly flouts the parts about discrimination and prioritization.

ETNO could get around this by proposing a tiered system of charges based on traffic volumes. Perhaps hobbyist and less popular sites do pay nothing, and fees are applied as certain capacity thresholds are breached. But leeching from a few companies, lazily lumped together as Big Tech, is tourist-price thievery.

What's more, who decides which companies are in the Big Tech club and which are out? Is it just based on the top five capacity guzzlers at any given moment? Does Chinese Big Tech qualify? Why is Netflix, worth just $85 billion this week, typically included when The Walt Disney Company, worth about $174 billion, is not? If the most popular site five years from now gobbles capacity but is a charitable not-for-profit, must it pay up (unlikely, granted, but not impossible)?

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None of this appears to have been thought through, and ETNO says it has no intention of levying new charges on anyone except Big Tech. "The fair contribution is about the imbalances, hence we propose to discuss a scope that reflects issues with 'large traffic originators'," said an ETNO spokesperson by email in response to questions. "It is about avoiding a 'tragedy of the commons' in which a very small number of Big Tech companies risk depleting a common resource (the Internet) by generating costs they do not contribute to."

Really? A quick look at the last annual report Amazon filed with the US Securities and Exchange Commission shows it invested $55.4 billion in capital expenditure last year alone – mainly, it says, on technology infrastructure, "the majority of which is to support AWS." AWS, of course, is the trove of Internet content and cloud-computing unit that has allowed operators to slash spending on IT resources. And $55.4 billion is about $15 billion more than the entire telecom industry spends each year on radio access network equipment.

ETNO says it has not considered how much Big Tech should pay, arguing that it is "up for the EU institutions to decide." But Europe is not the only place where telecom networks pulse with Netflix content. As big as they are, tech firms would be hamstrung if every single regulator worldwide backed telco demands for billions of dollars in fair contribution/tourist prices. Content would suffer and consumers would probably downgrade or even ditch their residential broadband connections. Telcos would inevitably be worse off.

Nor would anything less than tens of billions of dollars realistically make a difference. In 2020, the GSMA issued a report estimating operators would invest $1.1 trillion in capex between 2020 and 2025 (including the bookend years). Even if Internet giants were asked to contribute as little as a tenth, the required investment would add $110 billion to Big Tech's budget over this period.

Propping up telecom

Regardless of the amounts involved, the effect would not be to reinvigorate telecom but to give it a walking stick in its dotage. To begin with, the real cost problem for telcos lies with opex, which massively exceeds capex.

The UK's BT, for instance, flagged operating costs of nearly £18 billion (US$21.7 billion) in its last fiscal year but only £5.3 billion ($6.4 billion) in capex. Ratings agency Moody's estimates that about 35% of opex is spent on staff, energy and leasing equipment. All are difficult to cut, and a monetary contribution from Google would not change the basic model.

Worse, no operator has found an answer to the conundrum of unmetered Internet access in a saturated broadband market. Much like newspapers that raced to make online content free and are now busy erecting paywalls, operators could always pivot and try charging per megabyte. But none would risk it. Customers would flee to unmetered rivals or rein in usage. Panicking about the effect on the "digital economy," authorities would probably intervene.

Consumers will be forced to pay more if Big Tech does not, one senior telco executive told Light Reading this year. Nobody believes it.

Where does all this lead? Donald Trump is not usually seen as a friend to Big Tech, but he is certainly a protectionist. On his possible return to the White House in 2024, he could side with Amazon and Netflix against EU regulators whose "fair contribution" rules have weakened the US companies. Why not a Trump-sponsored "fair contribution" from international telcos to the cost of Big Tech data centers or submarine cables?

Another possibility is that Big Tech buys stakes in telecom. A share of the business is normally the quid pro quo when a company asks for investment, after all.

Operators have already spun off infrastructure assets and sold shares in them to private equity. Undeterred by India's animosity toward foreign investors, Facebook and Google have acquired stakes in Jio, India's biggest operator. European officials should think on that – because a Google-owned network hardly sounds like a positive step for neutrality.

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— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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